Disney Deal Nets Comcast E!

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After years of negotiations with The Walt Disney Co., Comcast got its wish list fulfilled just before Thanksgiving Day.

In a wide-ranging carriage deal, the nation's largest cable operator finally acquired full ownership of E! Networks for $1.23 billion.

Comcast also secured on-demand access to such hit ABC shows as Desperate Housewives and movies from Disney's film studios, such as Pirates of the Caribbean 2, for its customers.

Those movies could become available to Comcast customers as soon as 15 days after they are released on DVD. That's about 15 fewer days than in current windows.

The long-term agreement fortifies Comcast's on-demand services — a technology that can't be matched by satellite-TV providers — and expands its portfolio of cable-programming networks. The E! Networks include namesake E! Entertainment Television and a sister channel, Style.

For years, Comcast has been trying to gain full ownership of E! by buying out Disney's 39.5% stake.

For its part, Disney comes out of the complicated carriage pact with its own wins. Comcast, which serves 24.1 million subscribers, is launching ESPN Deportes, the Spanish-language service; increasing its carriage of SoapNet; and has formalized an agreement to carry the ESPN HD network.

The affiliation deal unveiled last week includes consent for Comcast to retransmit seven owned-and-operated ABC stations, and also includes Disney Channel, ABC Family, Toon Disney, ESPN, ESPN2, ESPN Classic and ESPNEWS.

But the agreement doesn't cover ESPN's broadband product, ESPN 360, or fledgling college sports network ESPNU.

All told, the new agreement adds up to roughly $1 billion in programming a year that Disney will supply to Comcast. The cable operator declined to comment on any license-fee increases it might have to pay.

In 2004 and 2005, a number of cable companies — including Cox Communications, Cablevision Systems, Charter Communications and the National Cable Television Cooperative — achieved contract renewals with ESPN that included average annual license-fee increases of about 7%, compared with the 20% the sports programmer had been getting.

“In our view, it is likely that Comcast achieved better terms, given its larger subscriber scale,” Spencer Wang, a media analyst at Bear Stearns & Co., wrote in a report last week.

As part of the pact, the Comcast On Demand service will offer primetime ABC shows and news for free in the seven markets where that network owns stations.

Starting in the fall of 2007, episodes of Desperate Housewives, Lost and two new yet-to-be determined primetime series will be available on demand the day after they air to Comcast consumers in the same owned-station markets. Later, that could expand to all of the cable operator's markets, according to Comcast spokeswoman Jenni Moyer.

Comcast will run the on-demand shows with their original commercials in place, but ABC can experiment with other ad models in the future, Disney spokeswoman Katina Arnold said.

Comcast will also be able to offer select programming from Disney Channel, SoapNet, Toon Disney and ESPN to on demand in markets where those channels are offered.

The $1.23 billion purchase price for Disney's 39.5% of E! Networks values the entire property at about $3.1 billion, or about 13.2 times estimated 2006 cash flow of $235 million.

While that multiple is below that of Time Warner's $1.2 billion purchase of 50% of Comedy Central in 2003 (28.1 times cash flow), it is in line with Liberty Media's 2003 purchase of 57% of home-shopping channel QVC from Comcast for $7.9 billion (15.1 times).

With 88 million E! subscribers and about 43 million Style homes, Disney's purchase price equates to about $24 per subscriber, Wang estimated.

“Looking at the economics of the networks, although E! is fairly mature, Style still has a long way to go on the distribution front before it reaches its full potential,” Kagan Research analyst Derek Baine wrote in a recent report. “We estimate cash flow will decline over the next two years, as Comcast enters into more cash-for-carriage deals to boost distribution.”

Under the VOD-movie agreement, Comcast will offer newly released movies on-demand from Walt Disney Pictures, Touchstone Pictures and Miramax Films for $3.99 each, while library titles will be available for $2.99 each.

Comcast will be able to offer Disney movies 15 to 45 days of their release on DVD, with an average of 30 days, according to Moyer.

Leichtman Research Group president Bruce Leichtman said this could be a first step toward titles going to on-demand on the same day they reach video outlets.

Typically, movies are offered to VOD and pay-per-view 30 to 60 days after they hit video-store shelves.

“It's clearly a shrinking of the windows, but they are trying to maximize revenue on each title, and clearly, they'll see how this benefits them,” Leichtman said. “If it's a positive benefit, then it could be a move towards day-and-date.”

R. Thomas Umstead and Mike Farrell contributed to this report.

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